Southeast Asia may not have made the most headlines in the race to lead the emerging hydrogen economy, but Japanese firms are certainly eyeing the region’s long-term potential. Roughly half of all hydrogen projects in Southeast Asia since 2020 have had direct Japanese financial involvement, according to research from Columbia University’s Center on Global Energy Policy.

Malaysia is one country seeing plenty of activity. Japanese oil firm Eneos, together with trading house Sumitomo, recently announced plans to produce c.90,000t/yr of CO₂-free hydrogen in the Malaysian state of Sarawak. In 2022, Eneos also partnered with state-owned oil giant Petronas to test commercial low-carbon hydrogen production in the Malaysian state of Terengganu.           

“Japanese firms are looking in particular to Malaysia and Indonesia, which are the largest gas producers in the region and have the potential to be large-scale hydrogen producers,” said Etienne Gelencser at law firm Shearman & Sterling. “Japanese firms have established relationships with key developers and local participants in the region as a result of existing long-standing investments in LNG and other traditional hydrocarbons.”

Early mover

The Malaysian authorities are well aware of the potential for the country to become a leading hydrogen production and trading hub. In October, the government released its Hydrogen Economy and Technology Roadmap (HETR), which set out ambitions to reach revenues exceeding MYR400b ($86b) by 2050. To achieve this, the government wants to cut the price of domestic green hydrogen from $6/kg to $1/kg by mid-century, as well as phase out the use of grey hydrogen as a feedstock.

3mt/yr – 2030 hydrogen demand target

Malaysia is also highly conscious of Japan’s mounting interest in hydrogen imports. According to the HETR, Japanese hydrogen demand is set to rise to 3mt/yr in 2030 before increasing to as much as 20mt/yr by 2050. The Malaysian government said this would put the Japanese hydrogen market at c.$4.9b by 2040 and $10.14b by 2050, based on 10% penetration. Only the Chinese market is projected to be larger in Asia-Pacific.

“To meet Japan’s carbon reduction goals, Japanese firms are looking for upstream projects that can ultimately provide a stable (high-volume) supply of low-carbon hydrogen at relatively low cost,” said Gelencser. “Southeast Asia is an attractive investment target primarily due to its proximity to Japan—this proximity helps to reduce the overall cost of, and emissions resulting from, transporting hydrogen to Japan.”

In 2017, Japan was among the first countries to embrace the switch to a hydrogen economy when the government released its Basic Hydrogen Strategy. In 2020, Japan went on to open one of the world’s first green hydrogen facilities in Fukushima, and in 2023 it announced plans to boost annual domestic hydrogen use to 3mt by 2030, 12mt  by 2040 and 20mt by mid-century.

“In June 2023, the Japanese government revised its Basic Hydrogen Strategy, in which it outlined its strategies for establishing a stable hydrogen supply chain and promoting the use of hydrogen (and its derivatives) domestically,” added Gelencser. “The government has announced plans to invest approximately ¥15t over 15 years, including through contract-for-difference type subsidies, green transition bonds, and support for certain construction and operational costs for domestic facilities that will utilise hydrogen and its derivatives.”

Playing catchup

Malaysia is not the only country in Southeast Asia looking to capture a chunk of Japanese hydrogen demand. In December, Japanese energy company JERA signed a memorandum of understanding (MOU) with Indonesian state-owned oil and gas firm Pertamina to invest in low-carbon fuels including hydrogen. In the same month, the Indonesian government also released its National Hydrogen Strategy as part of the country’s decarbonisation pledge to cut emissions by 32% by 2030, before reaching net zero by 2060. 

“Japanese firms are looking in particular to Malaysia and Indonesia, which...have the potential to be large-scale hydrogen producers” Gelencser, Shearman and Sterling

“It is difficult to pick a stand-out country; many in Southeast Asia have adopted policies to incentivise hydrogen projects, and a number of pilot projects are in the early stage across the region,” said Sean Conaty, partner at law firm Hunton Andrews Kurth.

“In terms of countries with significant production potential that have not dominated the headlines to date, in my view Indonesia and Vietnam are deserving of note. Both have exceptionally good conditions for wind- and solar-derived green hydrogen, and a number of major domestic energy companies have over the past year executed MOUs with key Japanese players for development of hydrogen production and export projects.”

According to the IEA, hydrogen production costs in Indonesia could fall to $1.7/kg by 2050 in regions with strong solar conditions, such as East Nusa Tenggara. In regions with high offshore wind potential, hydrogen costs could drop below $2.5/kg by 2050, while electricity generated from geothermal energy would result in similar pricing as well as a stable hydrogen supply. Production from unabated natural gas stands at c.$2.6/kg.

Neighbourly rival

Australia is the most obvious direct competition for Southeast Asian governments. The country already supplies a considerable share of Japan’s LNG imports and in 2022 completed the world’s first shipment of liquid hydrogen to the East Asian economic giant. The A$500m ($330m) pilot project produced hydrogen from brown coal and was backed by the Australian federal government, the Victoria state government and the Japanese government. 

In 2023, the Japanese authorities also committed A$2.35m to produce 30,000t/yr of clean hydrogen from Latrobe Valley coal via CCUS. Hydrogen will again be liquefied and shipped from the Port of Hastings to the Port of Kawasaki.

The Australian government is also taking steps to kickstart domestic low-carbon hydrogen production. In May, the government announced a A$2b investment to support large-scale green hydrogen projects, while the Australian Renewable Energy Agency has already provided at least A$236m to 43 renewable hydrogen projects, according to UK law firm Orrick, Herrington & Sutcliffe. The firm estimated that at least A$127b has also been announced in private hydrogen investment. 

“While grey hydrogen can be produced at high volume and relatively low cost, further local government support (including through subsidies, regulations and clear hydrogen policies) is required to develop the infrastructure needed for low-carbon hydrogen,” said Gelencser. “In this regard, Australia may have an advantage over its Southeast Asian counterparts by being an early implementer of policies and government support as it aims to become a low-carbon hydrogen hub in the region.”

The Japanese government is particularly looking at ways to meet its decarbonisation targets. In January, ¥3t was announced in subsidies for producers of green and blue hydrogen over the next 15 years. The authorities plan to offer subsidies for those not breaching an upper limit of CO₂ emissions during production.

“The recently announced programme that would implement a contract-for-difference arrangement to address the cost imbalance to importers of switching to green hydrogen while the costs are still high compared to fossil fuel alternatives could be a real boost to the industry,” added Conaty.

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Author: Marat Aslan